Monthly Shareholder Report

RNS Number : 2868Q

BH Macro Limited

17 October 2011

 



		BH MACRO LIMITED MONTHLY SHAREHOLDER REPORT: SEPTEMBER 2011 ADV02939 CONFIDENTIAL DO NOT COPY OR DISTRIBUTE Your attention is drawn to the disclaimer at the beginning and end of this document © Brevan Howard Asset Management LLP (2011). All Rights Reserved.
		Important Legal Information and Disclaimer BH Macro Limited ("BHM"), is a feeder fund investing in Brevan Howard Master Fund Limited (the "Fund"). Brevan Howard Asset Management LLP ("BHAM") has supplied the information herein regarding the Fund's performance and outlook. BHAM has used reasonable skill and care in the preparation of this material from sources believed to be reliable but gives no warranties or representations as to the accuracy or completeness of this information. BHAM is authorised and regulated by the Financial Services Authority. This material constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000 (the "Act") and the handbook of rules and guidance issued from time to time by the FSA (the "FSA Rules"). The material relating to the Fund and BHM included in this report has been prepared by BHAM and is provided for information purposes only and does not constitute an invitation or offer to subscribe for or purchase shares in the BHM or the Fund. This material is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material relating to the Fund and BHM have been obtained or derived from sources believed by BHAM to be reliable, but BHAM makes no representation as to their accuracy or completeness. Any estimates may be subject to error and significant fluctuation, especially during periods of high market volatility or disruption. Any estimates should be taken as indicative values only and no reliance should be placed on them. Estimated results, performance or achievements may materially differ from any actual results, performance or achievements. Except as required by applicable law, BHM and BHAM expressly disclaim any obligations to update or revise such estimates to reflect any change in expectations, new information, subsequent events or otherwise. All investments are subject to risk. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decisions. Tax treatment depends on the individual circumstances of each investor in BHM and may be subject to change in future. Returns may increase or decrease as a result of currency fluctuations. You should note that, if you invest in BHM, your capital will be at risk and you may therefore lose some or all of any amount that you choose to invest. This material is not intended to constitute, and should not be construed as, investment advice.  Potential investors in the funds to which this material relates should seek their own independent financial advice.  BHAM neither provides investment advice to, nor receives and transmits orders from, investors in the funds to which this material relates nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FSA Rules. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS

BH Macro Limited Manager: Brevan Howard Capital Management LP ("BHCM") Administrator: Northern Trust International Fund Administration Services (Guernsey) Limited ("Northern Trust") Corporate Broker: J.P. Morgan Securities Ltd. Listings: London Stock Exchange (Premium Listing) NASDAQ Dubai - USD Class (Secondary listing) Bermuda Stock Exchange (Secondary listing)	Overview: BH Macro Limited ("BHM") is a closed-ended investment company, registered and incorporated in Guernsey on 17 January 2007 (Registration Number: 46235). BHM invests all of its assets (net of short-term working capital) in the ordinary shares of Brevan Howard Master Fund Limited (the "Fund"). BHM was admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 14 March 2007. Total Assets: $2,054mm1 1. Estimated as at 30 September 2011 by BHM's administrator, Northern Trust.
Summary Information	BH Macro Limited NAV per share (estimated as at 30 September 2011) Share Class NAV (USD mm) NAV per Share USD Shares 599.5 $19.22 EUR Shares 310.9 €19.39 GBP Shares 1,143.7 1981p BH Macro Limited NAV per Share % Monthly Change USD Shares Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 - - 0.10 0.90 0.15 2.29 2.56 3.11 5.92 0.03 2.96 0.75 20.27 2008 9.89 6.70 -2.79 -2.48 0.77 2.75 1.13 0.75 -3.13 2.76 3.75 -0.68 20.32 2009 5.06 2.78 1.17 0.13 3.14 -0.86 1.36 0.71 1.55 1.07 0.37 0.37 18.04 2010 -0.27 -1.50 0.04 1.45 0.32 1.38 -2.01 1.21 1.50 -0.33 -0.33 -0.49 0.91 2011 0.65 0.53 0.75 0.49 0.55 -0.58 2.19 6.18 0.34* 11.50* EUR Shares Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 - - 0.05 0.70 0.02 2.26 2.43 3.07 5.65 -0.08 2.85 0.69 18.95 2008 9.92 6.68 -2.62 -2.34 0.86 2.84 1.28 0.98 -3.30 2.79 3.91 -0.45 21.65 2009 5.38 2.67 1.32 0.14 3.12 -0.82 1.33 0.71 1.48 1.05 0.35 0.40 18.36 2010 -0.30 -1.52 0.03 1.48 0.37 1.39 -1.93 1.25 1.38 -0.35 -0.34 -0.46 0.93 2011 0.71 0.57 0.78 0.52 0.65 -0.49 2.31 6.29 0.37* 12.17* GBP Shares Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2007 - - 0.11 0.83 0.17 2.28 2.55 3.26 5.92 0.04 3.08 0.89 20.67 2008 10.18 6.85 -2.61 -2.33 0.95 2.91 1.33 1.21 -2.99 2.84 4.23 -0.67 23.25 2009 5.19 2.86 1.18 0.05 3.03 -0.90 1.36 0.66 1.55 1.02 0.40 0.40 18.00 2010 -0.23 -1.54 0.06 1.45 0.36 1.39 -1.96 1.23 1.42 -0.35 -0.30* -0.45 1.03 2011 0.66 0.52 0.78 0.51 0.59 -0.56 2.22 6.24 0.34* 11.71* Source: Fund NAV data is provided by the administrator of the Fund, International Fund Services (Ireland) Limited. BHM NAV and NAV per Share data is provided by BHM's administrator, Northern Trust. BHM NAV per Share % Monthly Change is calculated by BHAM. BHM NAV data is unaudited and net of all investment management fees (2% annual management fee and 20% performance fee) and all other fees and expenses payable by BHM. In addition, the Fund is subject to an operational services fee of 50bps per annum. NAV performance is provided for information purposes only. Shares in BHM do not necessarily trade at a price equal to the prevailing NAV per Share. * Estimated as at 30 September 2011. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
ASC 820 Asset Valuation Categorisation*	Brevan Howard Master Fund Limited Unaudited Estimates as at 30 September 2011 % of Gross Market Value Level 1 55 Level 2 45 Level 3 0 Source: BHAM * These estimates are unaudited and have been calculated by BHAM using the same methodology as that used in the most recent audited financial statements of the Fund. These estimates are subject to change. Level 1: This represents the level of assets in the portfolio which are priced using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: This represents the level of assets in the portfolio which are priced using either (i) quoted prices that are identical or similar in markets that are not active or (ii) model-derived valuations for which all significant inputs are observable, either directly or indirectly in active markets; Level 3: This represents the level of assets in the portfolio which are priced or valued using inputs that are both significant to the fair value measurement and are not observable directly or indirectly in an active market.
Performance Review	During the month, the Fund made profits in interest rates, FX and equity trading. Some losses were suffered in commodities and credit trading. Monthly, quarterly and annual contribution (%) by the Fund to the performance of BHM USD Shares (net of fees and expenses) by strategy group Macro Rates FX EMG Equity Commodity Credit Systematic Total September 0.26 0.43 0.13 -0.24 0.08 -0.19 -0.11 -0.02 0.34 Q1 0.91 -0.13 0.06 0.33 -0.05 -0.04 0.88 0.00 1.95 Q2 -1.23 2.10 -0.21 0.15 -0.14 0.02 -0.25 0.01 0.45 Q3 4.26 3.68 0.31 0.60 0.19 0.05 -0.26 0.06 8.88 YTD 3.97 5.79 0.16 1.10 0.00 0.03 0.38 0.07 11.50 Monthly, quarter-to-date and year-to-date figures are estimated by BHAM as at 30 September 2011, based on total performance data for each period provided by BHM's administrator, Northern Trust. Methodology and Definition of Monthly Contribution to Performance: Attribution is approximate and has been derived by allocating each trader book in the Fund to a single category. In cases where a trader book has activity in more than one category, the most relevant category has been selected. The above strategies are categorised as follows: "Macro": multi-asset global markets, mainly directional (for the Fund, the majority of risk in this category is in rates) "Rates": developed interest rates markets "FX": global FX forwards and options "EMG": global emerging markets "Equity": global equity markets including indices and other derivatives "Commodity": liquid commodity futures and options "Credit": corporate and asset-backed indices, bonds and CDS "Systematic": rules-based futures trading
Market Review and Outlook	Market Commentary US The US economy has stalled and is facing three worrying developments. First, the labour market is teetering on the edge of recession. During the third quarter the aggregate wage bill of the private sector stopped expanding, and in two of the last three months both average weekly hours and average hourly earnings declined. Second, consumer confidence has dropped to levels last witnessed in 2008 during the depths of the Great Recession. This shock to confidence appears to reflect the deep pessimism of consumers about the future; there is the widely-held belief that no income growth will be experienced over the next year. Finally, manufacturing activity has slowed substantially, according to the ISM and regional surveys. This is a disturbing development since manufacturing had been the most buoyant sector during the expansion. In response to the slump in activity, the Federal Reserve ("Fed") eased monetary policy further at the Federal Reserve Open Market Committee meeting in September. However, instead of expanding the balance sheet, the Fed announced a new treasury maturity transformation initiative, "Operation Twist", which will sell shorter duration Treasury securities over the next three quarters in order to buy longer duration securities. This initiative has pushed down long-term Treasury yields by approximately 20-30bps, roughly equivalent to a 50bps cut in the Fed funds rate, if such an action were possible. Unfortunately, the action by the Fed has not as yet had the intended effect on risky assets - equities have continued to fall culminating in the S&P 500 Index drop of 7% during the month, the Trade-Weighted US Dollar Index rose 6%, and credit markets remained under stress. The economy faces substantial headwinds in the coming months. The US cannot remain sheltered from the stress emanating from Europe and the global economic slowdown. In addition, the fiscal debate remains unresolved. By the end of the year, Congress has to decide whether to extend the payroll tax cut and unemployment insurance benefits as well as deciding on longer-term fiscal consolidation. Manifestation of any of these risks could push the US into a serious recession. EMU During September, the discussions about the second bailout for Greece continued to grip financial markets. The Greek fiscal adjustment programme has shown further signs of slippage on the back of a rapidly shrinking economy and domestic resistance to additional reform measures. Furthermore, press reports have indicated that some creditor countries are pushing for a renegotiation of the private sector involvement, which was agreed at the European Council meeting on 21 July 2011. At the same time, the Federal Constitutional Court in Germany delivered its long-awaited ruling on the legality of the first Greek bailout and the participation of Germany in the European Financial Stability Facility ("EFSF"). While the court rejected the complaints, the court raised the hurdles for further steps towards generating a common pool of European government debt. The debate has therefore shifted to methods for leveraging the EFSF and, more recently, towards a recapitalisation of European banks. Economic surveys have continued to deteriorate across the euro area, with rapid declines in consumer and business confidence. In September, the Composite PMI for the euro area fell below its 50-point watermark for the first time since July 2009, suggesting an economic contraction. Euro area HICP inflation rose strongly in September, from 2.5% to 3.0% year-on-year, due to the pass-through from past commodity price rises, the recently enacted VAT rise in Italy, and some changes in seasonal clothing goods prices. Following higher-than-expected CPI inflation, the ECB kept interest rates unchanged at the policy meeting at the beginning of October. However, the ECB announced new measures to support banks, with the reopening of covered bond purchases and the launch of two one-year Long-Term Refinancing Operations. UK The outlook for the UK has deteriorated substantially over the last three months. Activity indicators for all sectors of the economy point to stagnation. Fiscal austerity continues to be a drag on the economy. The labour market, which had shown some strong employment growth earlier in the year, has reverted to slowly rising unemployment, consistent with below trend growth. The most vulnerable part of the economy continues to be the household sector: fiscal austerity, negative real income growth, stagnating house prices and high unemployment are all generating fierce headwinds. The recent additional weakness has come from the slowdown in the global manufacturing cycle, renewed tightening of financial conditions via bank funding, as well as the drop in consumer and business confidence due to further escalation of the EMU debt crisis. Inflation is likely to rise further in the coming months, as the long-anticipated utility price hikes take effect. However, various measures of underlying inflationary pressure have either fallen further or have remained low, and therefore, despite the high headline inflation, there is no sign of medium-term inflationary pressure. As a result, the high headline inflation should not constrain the actions of the Bank of England ("BoE"). The BoE announced a further £75bn of gilt purchases at the October meeting, a larger and earlier move than expected. Their stated reasons for the policy move were a weakening in the domestic and global recovery, renewed tightness in bank funding markets and the ongoing loss of confidence due to the EMU debt crisis. The tight fiscal and loose monetary policy is likely to be with us for an extended period.   Japan The rebound of the Japanese economy is beginning to lose momentum. In August, industrial production increased by a mere 0.8% month-on-month, 50% below consensus expectations. Furthermore, forecasts by industrial firms surveyed by the Ministry of International Trade and Industry indicate a 2.5% contraction of production in September. In addition, consumption fell by 0.1% month-on-month in August, although it remained in the July-August average and 0.9% higher than the levels recorded in the second quarter. In September, the pace of overall activity picked up modestly, as indicated by the Composite PMI, which increased slightly from 46.7 to 47.2, albeit remaining fairly subdued. The improvement was led by the services sector, for which the PMI increased from 44.3 to 46.4, due to the support of the reconstruction effort to domestic demand. Indeed, the PMI of the manufacturing sector, more exposed to the global slowdown and affected by the strong yen, fell from 51.9 to 49.3. Overall, the widening output gap and the strength of the yen continue to exert downward pressure on consumer prices, which contracted by 0.5% year-on-year in August, when excluding food and energy items. China In September, the Chinese Composite PMI recovered part of the drop recorded in July and August, increasing from 50.1 to 50.8. However, this level remains subdued, consistent with the ongoing soft landing of the economy. The growth of China is likely to stabilise following the moderate slowdown recorded in the first half of the year. On the negative side, inflationary pressures are not abating. Indeed, the People's Bank of China ("PBOC") survey of inflation expectations shows a rebound in the third quarter, while CPI inflation in September remained around the high levels recorded in August (6.2% year-on-year), albeit below the July peak. Bucking this trend, property prices are responding to the policy tightening implemented over the last few months, remaining approximately flat month-on-month in August, after rising by a mere 0.1% in July. In its third quarter Monetary Policy Committee statement, the PBOC acknowledged that inflation remains elevated following a moderate easing. As a result, the PBOC reiterated its intention to maintain a prudent monetary policy stance and to keep price stability as the top priority, signalling no intention to ease in the near-term. The PBOC injected liquidity through open market operations for eleven weeks in a row in order to prevent an overshooting of money market rates. However, the PBOC also issued bills targeted to the "big three" State-Owned Enterprises early in September, to drain their liquidity and keep lending growth under control.
Enquiries	Northern Trust International Fund Administration Services (Guernsey) Limited Harry Rouillard [phone]

Risk Factors

Acquiring shares in BHM may expose an investor to a significant risk of losing all of the amount invested. Any person who is in any doubt about investing in BHM (and therefore the Fund) should consult an authorised person specialising in advising on such investments. Any person subscribing for Shares must be able to bear the risks involved. These include, among others detailed in BHM's Prospectus, the following:

• The Fund is speculative and involves substantial risk.

• The Fund will be leveraged and will engage in speculative investment practices that may increase the risk of investment loss. The Fund will invest in illiquid securities.

• Past results of the Fund's investment manager is not necessarily indicative of future performance of the Fund, and the Fund's performance may be volatile.

• An investor could lose all or a substantial amount of his or her investment.

• The investment manager has total investment and trading authority over the Fund, and the Fund is dependent upon the services of the investment manager. The use of a single advisor could mean lack of diversification and, consequently, higher risk.

• Investments in the Fund are subject to restrictions on withdrawal or redemption and should be considered illiquid. There is no secondary market for investors' Interests in the Fund and none is expected to develop.

• There are restrictions on transferring Interests in the Fund.

• The Investment Manager's incentive compensation, fees and expenses may offset the Fund's trading and investment profits.

• The Fund is not required to provide periodic pricing or valuation information to investors with respect to individual investments.

• The Fund is not subject to the same regulatory requirements as mutual funds.

• A portion of the trades executed for the Fund may take place on foreign markets.

• The Fund is subject to conflicts of interest.

• The Fund is dependent on the services of certain key personnel, and, were certain or all of them to become unavailable, the Fund may prematurely terminate.

• The Fund's managers will receive performance-based compensation. Such compensation may give such managers an incentive to make riskier investments than they otherwise would.

• The Fund may make investments in securities of issuers in emerging markets. Investment in emerging markets involve particular risks, such as less strict market regulation, increased likelihood of severe inflation, unstable currencies, war, expropriation of property, limitations on foreign investments, increased market volatility, less favourable or unstable tax provisions, illiquid markets and social and political upheaval.

The above summary risk factors do not purport to be a complete description of the relevant risks of an investment in Interests and therefore reference should be had to BHM's Prospectus and related offering documentation for a complete description of these and other relevant risks. 

 

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